How to Conduct Property Due Diligence: A Complete Guide for Buyers

It’s not uncommon for property buyers, especially first-time buyers, to rush into deals that seem too good to pass up. However, to avoid costly mistakes, conducting thorough property due diligence is essential to ensure the success of your investment.

Whether you’re buying a house or an apartment, here’s a checklist covering everything you need to know about property due diligence.

What is due diligence in real estate?

In real estate, due diligence refers to the comprehensive assessment of a property’s physical and financial aspects to minimise risks for the buyer. It is the buyer’s responsibility to thoroughly investigate the property before signing a contract.

Why is due diligence important when purchasing property?

The importance of due diligence cannot be overstated. Skipping this step can lead to serious issues, such as structural defects or pest infestations, that may cost thousands to fix. Identifying these problems early allows you to negotiate better terms or walk away from the purchase.

Due diligence is particularly crucial when buying at auction, where there is no cooling-off period. If problems are discovered after the auction and you choose not to proceed, you risk losing your 10% deposit—or worse, you may be legally required to complete the purchase despite the issues.

How to conduct due diligence as a property buyer

To ensure a smooth and well-informed purchase, follow this due diligence checklist:

• Have your contract reviewed by a property lawyer
  Property contracts often contain complex legal terms. A property lawyer can review the contract, highlight potential red flags, and explain your obligations. This step helps you avoid liabilities and uncover issues such as easements, covenants, mortgages, and zoning restrictions.

• Get a building and pest inspection report
  A building and pest inspection assesses the structural condition of the property and identifies issues like leaks, safety hazards, structural defects, or termite damage. You can use this information to negotiate the purchase price or reconsider the deal. While the seller’s agent may provide a report, be cautious, independent inspections ensure there is no bias. Although it may be tempting to conduct your own inspection to save money, hiring a professional ensures accuracy and compliance with regulations.

• Obtain a strata report for apartments
  If purchasing a strata apartment, request a strata report to assess the body corporate’s financial health, maintenance records, and any disputes among owners. This report can reveal structural defects, pending repairs, and the sustainability of the sinking fund. Structural issues in apartment buildings are typically the responsibility of the body corporate. Investors should review strata meeting minutes to identify any ongoing concerns before proceeding with inspections.

• Obtain a survey report
  Not all contracts include a property survey report, but it is highly recommended. A survey report provides details about the property’s boundaries, easements, and encroachments, as well as subsurface features like septic tanks or wells. This information is crucial for future development plans and ensures compliance with zoning regulations.

• Request building certificates from the council
  A building certificate, issued by the local council, confirms the legal status of existing buildings on the property. It assures both buyers and sellers that the council will not issue orders for demolition or repairs for at least seven years. This prevents unexpected costs after purchase.

When should due diligence be completed?

All due diligence should ideally be completed before exchanging contracts.

For auctions, where there is no cooling-off period, all research must be finalised beforehand.

For private treaty sales, there is typically a five-day cooling-off period, which allows time to finalise inspections and contract reviews. However, if a Section 66W certificate is involved and the cooling-off period is waived, all due diligence must be completed before signing.

Thorough property due diligence ensures that your investment is secure and free from unexpected risks. By taking the time to investigate all aspects of the property, you can confidently move forward with your purchase.